DBRS Confirms Rio Tinto plc & Rio Tinto Limited at A (low) with a Positive Trend

DBRS Limited (DBRS) confirmed the Issuer Rating for Rio Tinto plc & Rio Tinto Limited (Rio Tinto or the Company) at A (low) with a Positive trend. The confirmation of the Issuer Rating is based on the Company’s key credit metrics remaining strong for the rating (currently in the “A” category), partially offset by a modestly lower business risk assessment following the significant asset sales in 2018. The Positive trend is driven by the potential for higher iron ore prices versus the Bloomberg consensus forecasts (as of April 3, 2019) due to the forced production curtailments by Vale S.A. (rated BBB (low) with a Stable trend by DBRS) in Brazil and the outages in the Pilbara region from Cyclone Veronica (Rio Tinto (100% basis) share 14 million tonnes in 2019) that will, in aggregate, materially reduce seaborne-traded supply for at least 2019. DBRS notes that the potentially higher-than-expected iron ore prices could result in windfall cash flow with which Rio Tinto could replace the approximate $1 billion in EBITDA contribution in 2018 from the divested coal, aluminium and copper assets.

During 2018, Rio Tinto continued to reduce debt (including derivatives and other financial liabilities), which, as at December 31, 2018, stood at $13.9 billion compared with $16.1 billion at the end of 2017 and the peak of $28.6 billion at the end of 2013. Rio Tinto’s next debt maturity is EUR 401.7 million ($468 million) in 2020 followed by EUR 416.7 million ($514 million) in 2024. DBRS does not expect further debt reduction in 2019, due to the high premiums associated with debt tenders. Instead, DBRS expects the Company to continue to return surplus cash to shareholders and potentially acquire assets to replace the EBITDA and cash flow from the assets divested in 2018.

DBRS’s expectations are for modest improvement in the Company’s key credit metrics in 2019, based on improved cash flow and EBITDA (based on Bloomberg consensus commodity price forecasts as at April 3, 2019), flat debt levels and moderately lower interest expenses. DBRS expects, all things being equal, that Rio Tinto should exit 2019 with approximately $10 billion in cash.

If the Company re-deploys its cash in a manner that improves its business risk profile, then a positive rating action could occur. However, if global trade tensions, especially between the United States and China, result in undue economic upheaval that reduces the demand for, and price of, Rio Tinto’s principal commodities, and this results in a significant deterioration of its financial risk profile, then a negative rating action could occur.

Notes:
All figures are in U.S. dollars unless otherwise noted.

The principal methodology is Rating Companies in the Mining Industry (September 2018), which can be found on dbrs.com under Methodologies & Criteria.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link under Related Documents or by contacting us at info@dbrs.com.

This rating was not initiated at the request of the rated entity.

The rated entity or its related entities did not participate in the rating process for this rating action. DBRS did not have access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

This is an unsolicited credit rating.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.

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